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New tax year – child benefit and tax credit changes

How changes from the Budget 2012 will affect you

Child tax credits

There are significant and complex changes to child tax credits and benefits in 2012/13

With the new tax year starting on 6 April 2012, Which? Money shows you how your personal finances will be affected in the 2012/13 tax year. Today, we explain changes to child tax credits, working tax credit and child benefit. 

Child allowance and guardian’s allowance changes

Child allowance is a tax-free payment you receive if you’re responsible for one or more children. Guardian’s allowance is a tax-free payment if you’re bringing up children whose parents have died.

In the 2012 Budget, Chancellor of the Exchequer George Osborne announced a new child allowance charge on any taxpayer who has net income over £50,000 in a tax year, where they or their partner receives child benefit. This change will come into effect from 7 January 2013.

  • The income tax charge will reduce child benefit by 1% for every £100 of income between £50,000 and £60,000. If both partners have ‘adjusted net income’ over £50,000, the partner with the higher income is liable for the charge.
  • In practice, this means that taxpayers with income above £60,000 will see their entire child benefit payment cancelled out by the new 1% charge.
  • If you earn between £50,000 and £60,000, your child allowance will be reduced on a sliding scale.

For the tax year 2012/13, the amount of income taken into account will be your full income for 2012/13. However, child benefit will only be reduced for the period from 7 January 2013 to the end of the tax year on 5 April 2013.

The table below shows the maximum child benefit and guardian’s allowance you can receive, before the new child allowance charge.

Changes to child benefit and guardian’s allowance
Child benefit and guardian’s allowance (per week) From April 2011 From April 2012
Child benefit: Eldest/only child £20.30 £20.30
Child benefit: Other children £13.40 £13.40
Guardian’s allowance £14.75 £15.55

Child tax credits – income limit falls

Child tax credits vary depending on your family circumstances and income. Before 6 April 2012, you could usually get some child tax credit if your income was £41,300 or less. However, from 6 April 2012 this limit will be lower for most people, so fewer people will qualify.

As a rough guide, you might not qualify for child tax credit from 6 April 2012 if:

  • you have one child and your annual income is around £26,000 or more
  • you have two children and your annual income is more than around £32,200

Some people with income above these levels may still qualify, for example if you pay for childcare, are disabled or have more than two children.

The table below shows the maximum amounts you can receive in child tax credits.

Maximum child tax credit rates (£ per year)
Rates 2011/12 2012/13
Child tax credit family element £545 £545
Child element £2,555 £2,690
Disabled child element £2,800 £2,950
Severely disabled child element £1,130 £1,190

Working tax credits – new working hours rules

If you are responsible for children and work at least 16 hours a week, you may have previously qualified for working tax credit. However, from 6 April couples with children will need to work at least 24 hours a week between them to qualify. The new rule changes don’t apply to single people who are responsible for children. 

In practice, the new rules mean that:

  • if you both work, you must work at least 24 hours a week between you, with one of you working at least 16 hours a week
  • if only one of you works, that person must be working at least 24 hours a week

If neither of these apply, your working tax credit may stop from 6 April 2012.

Working tax credits – changes to backdated claims

At the moment, the Tax Credit Office can pay tax credits for up to three months before the date they get your claim form. This is known as ‘backdating’ your claim. From 6 April 2012, this period reduces to one month. The same goes for increases in the working tax credit you receive because of changes in your personal circumstances.

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